Commodities

EUR/USD futures traders are on the cusp of flipping to net-short exposure, and managed funds are increasing their short exposure to gold and crude oil.

WTI crude oil was up over 4% during the Asian session on reports that Israel’s middles had struck a site in Iran, further fans fears of a broader-scaled war in the middle East.

Crude oil appears toppy after a mammoth rally since February, unable to push higher despite some seriously strong tailwinds stemming from geopolitics, supply curbs and ongoing strength in the US economy.

Net-short exposure to yen futures rose to a 16-year high last week, and now within reach of its record. Asset managers appear to be on the right side of the US dollar trade, with large speculators remaining net-short despite the dollar's rally. Net-long exposure for oil and gold futures continued to trend higher, but neither are at levels which screams sentiment extreme. And asset managers are on the cusp of flipping to net-long exposure to the VIX.

Big, ugly and unusual given the escalation in geopolitical tensions in the Middle East. You can see why traders are questioning whether the big reversal in gold last Friday may signal we’ve seen a near-term top after a rollicking start to 2024.

Gold and silver are doing exactly what you’d expect after breaking long-running resistance. And that's before you consider fundamentals such as geopolitics, central bank purchases, limited mine development, rising inflation expectations and troubling fiscal outlooks from some of the world’s largest economies.

It’s not just fundamentals and technicals driving the rally across large parts of the commodity complex right now, but also a collective rethink from traders about what more than 250 basis points worth of rate cuts from the Federal Reserve this cycle will mean for the long-term global inflation trajectory.

Forget focusing on the payrolls figure in the US jobs report. It’s not as important as it’s made out to be. Traders would be better off looking at unemployment and average hourly earnings data if they want to know how markets are likely to react.

Factors supporting oil price include optimism over China, bullish forecast from IEA and general strength in commodities.

Gold, copper, silver, crude, cocoa – it’s a rarity to not come across a particular commodity that’s suddenly running hard. Every day there seems to be another one joining the increasingly lengthy list, providing a sense we may be at a turning point for the broader commodity complex.

Those considering buying the break may want to look at copper’s lousy track record when it’s been this overbought on the four hourly chart in the past.

Iron ore futures are in an increasingly ugly bear market, spiraling lower since the beginning of the year after defying bears for what seemed to be an eternity in 2023. With the price catching up to what fundamentals had been warning for months, traders are wondering how far the move can extend?

The reversal on USD/JPY did not come without warning, as traders had reached a record level of net-short exposure. And whilst USD/JPY may be due for a bounce, further downside potential remains.

Especially for those traders who like to dabble in markets exposed to currency or interest rate risk.

Some analysts are speculating that the market is “sniffing out” the fact that the US and other developed countries will be unable to maintain high interest rates for long given their record debt loads. See what it might mean for Gold and Bitcoin!

Silver has recorded its largest gain in months, sparking plenty of excitement on social media and other investment platforms that the move may be the start of a prolonged price rally.

Short exposure to the Japanese yen continues to venture towards the extreme, which suggests USD/JPY could fast be approaching a reversal.